Skf q4 2010_pr_eng


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Skf q4 2010_pr_eng

  1. 1. SKF Year-end report 2010Tom Johnstone, President and CEO:"SKF delivered a very good performance in 2010 with record operating profit and operatingmargin and a strong cash flow. We took a number of steps during the year to furtherstrengthen the Group and opened three new factories and announced two more to support ourdevelopment in the faster growing regions and segments. In addition, we completed theacquisition of Lincoln Industrial which complements our existing lubrication systems business.In the fourth quarter all regions and divisions showed very good growth, as expected.Entering 2011 we expect to see a continued positive volume development. However, we willface headwinds due to currency and higher raw material costs, adding to those already facedin the fourth quarter. To support our long-term profit and growth targets we will step up ourinvestments in manufacturing, research and development and in additional sales andengineering resources.” Q4 Q4 YTD YTD 2010 2009 2010 2009Net sales, SEKm 15,409 13,887 61,029 56,227Operating profit, SEKm 2,202 1,004 8,452 3,203Operating margin, % 14.3 7.2 13.8 5.7Operating margin excl. one-off items, % 14.9 10.1 14.2 8.0Profit before taxes, SEKm 2,048 765 7,549 2,297Net profit, SEKm 1,350 505 5,296 1,705Basic earnings per share, SEK 2.87 1.05 11.28 3.61The increase of 11.0% in net sales for the quarter, in SEK, was attributable to: volume 16.3%,price/mix 0.9% and currency effects -6.2%. For the full year, the increase of 8.6%, in SEK,was attributable to: volume 14.1%, price/mix 0.1% and currency effects -5.6%.The quarter included costs, affecting the operating profit, of around SEK 100 million due to theacquisition of Lincoln Industrial. Total one-off items impacting operating profit for the full-yearamounted to SEK 190 million.Dividend proposalBased on the strong performance, cash generation capacity and outlook, the Board hasdecided to propose to the Annual General Meeting an increase in the dividend of 43%, giving adividend of SEK 5.00 (3.50) per share.Outlook for the first quarter of 2011Development compared to the first quarter last yearThe demand for SKF products and services is expected to be significantly higher for the Group, thedivisions and for the different geographical areas.Development compared to the fourth quarter 2010 and adjusted for normal seasonalityThe demand is expected to be slightly higher for the Group and for the different geographicalareas. The Industrial Division and the Service Division are expected to be slightly higher and theAutomotive Division higher.Manufacturing levelThe manufacturing level will be significantly higher year on year and slightly higher comparedto the fourth quarter, adjusted for normal seasonality.
  2. 2. Development in the fourth quarter compared to the same period last yearSales in local currencies were significantly higher for the Group, for Europe, North America,Latin America and Asia as well as for the divisions.The manufacturing level was significantly higher than in the fourth quarter last year.Financial 31 December 30 September 31 DecemberKey figures 2010 2010 2009Inventories, % of annual sales 21.1 20.2 20.9ROCE for the 12-month period, % 24.0 20.7 9.1ROE for the 12-month period, % 28.4 24.3 9.0Equity/assets ratio, % 36.0 36.0 35.8Gearing, % 48.6 47.6 49.3Net debt/equity, % 80.5 61.5 68.9Registered number of employees 44,742 42,475 41,172The SKF Group’s balance sheet and key figures above are impacted by the inclusion of LincolnIndustrial’s preliminary balance sheet. Excluding Lincoln Industrial, inventories were 20.0%and the number of employees was 42,735. The total purchase price for Lincoln Industrial wasSEK 7,047 million, and the cash outflow was SEK 6,764 million.Cash flow, after investments and before financing, was SEK -5,966 million (1,445) for thefourth quarter and SEK -2,838 million (5,752) for the full year 2010. Excluding the acquisitionof Lincoln Industrial it was SEK 798 million for the fourth quarter and SEK 3,926 million for thefull year.The financial net in the fourth quarter of 2010 was SEK -154 million (-239), for the full year itwas SEK -903 million (-906). The full-year figure has a negative effect of SEK 225 millionrelating to a loss on the Ovako vendor note.Exchange rates, the effects of translation and transaction flows, had a negative effect of SEK50 million on SKF’s operating profit in the fourth quarter and a negative effect of around SEK400 million for the full year, compared to the corresponding period last year. It is estimatedthat there will be a negative effect of SEK 150 million on operating profit in the first quarterand for the full year a negative effect of SEK 900 million, based on current assumptions andexchange rates and compared to the corresponding period last year.R&D expenditure was SEK 1,184 million (1,217), corresponding to 1.9% (2.2) of annualsales, excluding developing IT solutions. The number of first filings of patent applicationswas 251 (218).SKF’s Performance Share Programme 2011In order to continue to link the interests of the senior management and the shareholders, theBoard proposes that a decision be taken at the Annual General Meeting in April 2011 on SKF’sPerformance Share Programme 2011. The terms and conditions of the proposed SKF’sPerformance Share Programme 2011 are in essence the same as the terms and conditions ofthe programmes for 2008, 2009 and 2010.
  3. 3. It is proposed that the programme covers a maximum of 310 senior managers and keyemployees in the SKF Group, including Group Management, with the opportunity of beingallotted, free of charge, SKF class B shares. The number of shares that may be allotted mustbe related to the degree of achievement of financial targets defined by the Board of Directorsin accordance with the SKF Group’s TVA management model and must pertain to the periodcommencing 2011 up to and including 2013. Under the programme, no more than 1,000,000class B shares may be allotted.The Performance Share programme 2008, which was decided by the AGM on April 16, 2008will be settled in the first quarter 2011. The outcome is that about 250 managers of the SKFGroup will receive around 117,000 SKF class B shares (around 12% of maximum) amountingto around SEK 25 million including social charges.The year in briefThe Group’s ongoing cost reduction activities, combined with the improved volumes both insales and manufacturing and the continued implementation of the Group’s strategy, had avery positive effect on the Group’s operating profit and resulted in a record operating profitand operating margin for the Group. The steps taken in recent years to make the companymore robust is giving results which can be seen by the very positive development in 2010 andthe resilient performance in 2009.As a result of the strong performance and the strategy for the SKF Group new long-termfinancial targets were announced in October 2010. The new targets are to have an operatingmargin level of 15%, annual sales growth in local currencies of 8% and a return on capitalemployed of 27%. The inventory target of 18% of net sales remain. The main initiatives goingforward to support the strategy and targets will be to accelerate profitable growth, to reducecosts and eliminate waste and to invest for growth.Three new factories were opened during the year, two in India, at Haridwar and Ahmedabad,and one in Russia at Tver. These factories are built to the LEED (Leadership in Energy andEnvironmental Design) or equivalent standard as with all new SKF facilities. SKF alsoannounced the construction of two new factories which will open in late 2011. A new sealsfactory is under construction in Mysore, India and a bearing factory is being established inDalian, China to produce medium-sized bearings for the industrial market.SKF continued to open new SKF Solution Factories throughout the year with nine beingopened, bringing the total at the end of 2010 to 17. These SKF Solution Factories gather SKF’sexpertise under one roof and are already proving beneficial for customers and distributors bymaking SKF’s knowledge more readily accessible to them.To support the development in Asia, SKF opened a new Global Technical Centre in China tocomplement the centre opened in India in 2009. These new Global Technical Centres will bean integral part of the SKF Group’s global technology network and will bring new productdevelopment closer to SKF’s customers in this rapidly developing region.Acquisition of Lincoln Industrial (see separate press release dated 23 December 2010)SKF’s acquisition of Lincoln Holding Enterprises (Lincoln Industrial), a leading supplier oflubrication systems and tools was completed at the end of the year. Lincoln Industrial,headquartered in St. Louis, Missouri, USA has about 2,000 employees and generated sales ofaround USD 400 million in 2010 with an operating margin of around 24%.
  4. 4. The acquisition is in line with SKF’s strategy to grow the lubrication systems market. LincolnIndustrial is highly complementary to SKF’s existing lubrication system business when itcomes to geographical sales coverage, technology and manufacturing footprint, in particular inNorth America and Asia. In addition, Lincoln Industrial provides SKF with improved access tothe lubrication tools and equipment aftermarket in North America.
  5. 5. Page 1 of 19Lincoln Industrial is included in the Group’s balance sheet at year-end 2010 with preliminaryopening balances, as follows:Fair value of net assets acquired (SEKm):Intangibles assets 7,032Operating assets 1,747Other liabilities -1,732Total purchase price 7,047Cash and cash equivalents acquired -283Cash outflow 6,764Lincoln Industrial’s income statement will be included in the Group from the first-quarter results of2011, as part of a newly created business unit for lubrication systems within SKF IndustrialDivision.Based on the preliminary opening balances, annual amortization and depreciation together areexpected to be slightly below USD 25 million for acquired intangibles and plant, property andequipment after fair value adjustments. The operating profit will be negatively impacted primarilyin the first quarter by around USD 15 million, representing the fair value adjustment on inventoriesas part of opening balances for Lincoln Industrial.Please see enclosure 8 for more information about the acquisition of Lincoln Industrial.Divestment subsequent to year endSKF divested its forging business, Officine Meccaniche Villar Perosa SpA (OMVP), in Villar Perosa,Italy to the German based company Neumayer Tekfor Holding GmbH, one of the largest forgingcompanies in Europe. The sale is fully in line with the SKF’s strategy to divest non-core componentmanufacturing and will have a limited impact on the results and cash flow. OMVP has about 550employees and net sales of around EUR 100 million, mainly to other SKF operations. The partieshave agreed on continuing the supply and strengthening the cooperation.DivisionsComments on sales are based on local currencies and compared to the corresponding period for2009. The operating margin has been calculated on sales including intra-Group sales.Industrial DivisionThe operating profit for the fourth quarter amounted to SEK 902 million (237), resulting in anoperating margin of 12.1% (3.5) on sales including intra-Group sales. The operating profit for thefull year amounted to SEK 3,498 million (1,551), resulting in an operating margin of 11.8% (5.4).Sales including intra-Group sales for the quarter were SEK 7,443 million (6,745), and for the fullyear SEK 29,607 million (28,546).Net sales for the fourth quarter amounted to SEK 4,904 million (4,508) and for the full year SEK19,424 million (19,534). The increase of 8.8% for the quarter was attributable to:organic growth 16.6% and currency effects -7.8%.For the full year the decrease of -0.6% was attributable to:organic growth 6.0% and currency effects -6.6%.Sales in local currency for the fourth quarter were significantly higher in Europe, North Americaand Asia. For the full year they were lower in Europe, higher in North America and significantly
  6. 6. Page 2 of 19higher in Asia. The positive trend continued in all main segments with a particular gooddevelopment in construction equipment, fluid power and industrial gearboxes.Service DivisionThe operating profit for the fourth quarter amounted to SEK 841 million (729), resulting in anoperating margin of 14.6% (14.3). The operating profit for the full year amounted to SEK 3,036million (2,585), resulting in an operating margin of 13.5% (13.0). Sales including intra-Group salesfor the quarter were SEK 5,763 million (5,098), and for the full year SEK 22,408 million (19,957).Net sales for the fourth quarter amounted to SEK 5,664 million (5,008) and for the full year SEK22,029 million (19,599). The increase of 13.1% for the quarter was attributable to:organic growth 17.2% and currency effects -4.1%.For the full year the increase of 12.4% was attributable to:organic growth 16.1% and currency effects -3.7%.Sales in local currencies for the fourth quarter were significantly higher in Europe, Asia, NorthAmerica and Latin America. In Middle East and Africa they were higher. For the full year they weresignificantly higher in Europe, Asia, Latin America and Middle East and Africa. In North Americathey were higher, affected by the ongoing distributor de-stocking.Automotive DivisionThe operating profit for the fourth quarter amounted to SEK 445 million (92), resulting in anoperating margin of 8.2% (1.9). The operating profit for the full year amounted to SEK 1,859million (-785), resulting in an operating margin of 8.5% (-4.1). Sales including intra-Group salesfor the quarter were SEK 5,439 million (4,880), and for the full year SEK 21,989 million (19,103).Net sales for the fourth quarter amounted to SEK 4,491 million (4,110) and for the full year SEK18,231 million (16,051). The increase of 9.3% for the quarter was attributable to:organic growth 16.3% and currency effects -7.0%.For the full year the increase of 13.6% was attributable to:organic growth 20.2% and currency effects -6.6%.Sales in local currencies to the car and light truck industries in Europe and North America werehigher for the quarter and significantly higher for the full year. In Asia sales were significantlyhigher both for the quarter and for the full year.Sales to the heavy truck industries in Europe, North America and Asia were significantly higherboth for the quarter and for the full year.Sales to the vehicle service market in Europe, Latin America and Asia were significantly higher inthe quarter and for the full year. In North America sales were significantly higher in the quarterand relatively unchanged for the full year.Sales to the electrical industry in Europe as well as sales to the two-wheeler industry in Asia weresignificantly higher both for the quarter and for the full year.Highlights in the quarter:In Europe, a new contract for the SKF Low Friction Engine Seal with Isuzu was signed. The SKFLow Friction Engine Seal, launched in 2010, is used in many automotive applications, providinglower fuel consumption and reducing CO2 emissions via significantly reduced friction.In Germany, a SKF Gear Bearing Unit was developed with Daimler for their heavy duty engines.This is a customized tapered gear bearing unit designed to accommodate heavy loads.
  7. 7. Page 3 of 19A number of new offerings were launched during the quarter. The solutions include among others apulley unit designed for the alternator in the engine and a unit that helps to reduce energy andwater consumption for front loaded washing machines.Previous outlook statement:Outlook for the fourth quarter of 2010Development compared to the fourth quarter last yearThe demand for SKF products and services is expected to be significantly higher for the Group, thedivisions and for the different geographical areas.Development compared to the third quarter 2010 and adjusted for normal seasonalityThe demand is expected to be slightly higher for the Group, the divisions and for the differentgeographical areas.Manufacturing levelThe manufacturing level will be significantly higher year on year and unchanged compared to thethird quarter, adjusted for normal seasonality.Highlights in the previous quarters• SKF was awarded a contract with Guohua Energy Investment, a major Chinese energy company to supply 180 SKF WindCon systems to improve reliability maintenance for existing turbines. Guohua Energy Investment is also developing a new wind farm in Beijing to which SKF will supply 58 SKF WindCon systems.• SKF has launched 13 new offerings to help customers increase reliability and safety as well as reduce costs, CO2 emissions and environmental impact. The solutions include a four-row tapered roller bearing for rolling mills, a low friction X-Tracker wheel hub bearing unit for cars and light trucks, SKF Cam Follower Units for direct injection systems of cars and trucks, asset management services for cranes, specialized bearings for sub-sea and pumps in extreme environments in the oil and gas industry and a hydraulic-driven lubricator for hammers and breakers used in the construction industry.• SKF has now documented over USD two billion savings by its customers as a result of using SKF solutions. This data was collected over a 10-year period with the close cooperation of customers and the use of a patented SKF program, SKF Documented Solutions Program.• SKF is building a factory for medium-sized bearings in China. The factory will be located in Dalian, close to SKF’s existing factory for large-sized bearings. The new investment amounts to around SEK 400 million and is expected to come into operation in 2011 employing 250 people.• SKF will expand its present seals manufacturing capacity by building a new factory in Mysore, India that will serve customers within the automotive, railway and industrial applications segments. The investment amounts to around SEK 160 million and will be fully operational by the second half of 2012 employing about 600 people.• SKF is investing around USD 18 million in a new heat treatment facility in Falconer, USA, as part of an expansion to its areoengine operations in the country. The new facility will house a new high-tech vacuum furnace for the carburizing and hardening of a variety of materials and is a very critical operation in the bearing manufacturing process.• Two new SKF Solution Factories were inaugurated in the quarter, one in the UK and one in Turkey. There are now fourteen SKF Solution Factories over the world.• SKF’s newly constructed manufacturing facility in Tver, Russia as well as the new corporate head office in Lansdale, USA have been designed and constructed according to the U.S. Green Building council’s LEED (Leadership in Energy and Environmental Design) standard. The factory in Tver has now been awarded Gold level and is the first manufacturing facility to have this
  8. 8. Page 4 of 19 type of certification anywhere in Russia, while the Lansdale office has achieved Platinum - the highest level in the LEED certification system.• For the eleventh year in succession, SKF was selected to be a member of Dow Jones’ Sustainability World Indexes and for the tenth year in succession, in the FTSE4Good Index Series.• SKF inaugurated its new factory in Tver, Russia where the new generation of SKF’s sealed and pre-lubricated compact tapered bearing units will be produced for the Russian and international railway customers. The factory will be one of the first in Russia and in Europe with LEED certification. The investment amounts to around SEK 235 million and the factory will employ 100 people.• SKF inaugurated a Global Technical Centre China in Shanghai. The centre will be an integral part of SKF’s global network of technical centres and will enable SKF to develop products and solutions for local and global customers in a faster and more cost effective way.• SKF was awarded an agreement with ZF Sachs Italy to supply 140,000 oil seals and wiper seals for motorcycle forks.• SKF signed a three-year contract worth around SEK 34 million with Valeo to supply SKF Rotor Positioning Bearings for the new i-StARS, Valeos stop-start system. i-StARS automatically cuts off the vehicle’s engine when slowing down under 8 km/h, e.g when stopping for a red light. The system enables further reduction in CO2 emissions.• SKF signed a framework agreement with the State Forestry Administration in China to plant new forests, in remote areas of the country. The project is expected to run for five years.• SKF received the “Golden Mousetrap” award in the 2010 “Best products awards” announced by the magazine Design News. This was in the Electronics/Test and Measurement category and for the new SKF Machine Condition Advisor, a handheld instrument which simplifies machine monitoring and provides early warning of potential failures. Design News annual Golden Mousetrap Awards recognize engineering innovation and creativity in product design.• SKF has assisted S-OIL, a large South Korean oil refinery, to increase productivity and reduce potential production downtime. The project resulted in a payback for S-OIL in less than 11 months. The SKF solution included the development of asset strategy, defect eliminations and operator driven reliability.• Three new SKF Solution Factories were inaugurated, one in Schweinfurt, Germany, one in Montigny-le-Bretonneux, France and one in Moscow, Russia.• SKF inaugurated two new factories in India. The factory in Haridwar will manufacture deep groove ball bearings and the Ahmedabad factory will manufacture medium to large-sized bearings of various types.• A programme was concluded in March for adjusting the manufacturing capacity in Gothenburg, Sweden. The total cost of these activities, around SEK 90 million, mainly impacted the Industrial Division and has been charged to the income statement in the first quarter. The benefit of these actions will be around SEK 50 million per year when fully implemented by the third quarter.• The ninth SKF Solution Factory was inaugurated in Houston, USA.Risks and uncertainties in the businessThe SKF Group operates in many different industrial, automotive and geographical segments thatare at different stages of the economic cycle. A general economic downturn at global level, or inone of the world’s leading economies, could reduce the demand for the Group’s products, solutionsand services for a period of time. In addition, terrorism and other hostilities, as well asdisturbances in worldwide financial markets, could have a negative effect on the demand for the
  9. 9. Page 5 of 19Group’s products and services. There are also political and regulatory risks associated with thewide geographical presence. Regulatory requirements, taxes, tariffs and other trade barriers, priceor exchange controls or other governmental policies could limit the SKF Group’s operations.The SKF Group is subject to both transaction and translation of currency exposure. For commercialflows the SKF Group is primarily exposed to the USD and to US dollar-related currencies. As themajor part of the profit is made outside Sweden, the Group is also exposed to translational risks inall the major currencies. The parent company performs services of a common Group character. Thefinancial position of the parent company is dependent on the financial position and development ofthe subsidiaries. A general decline in the demand for the products and services provided by theGroup could mean lower dividend income for the parent company, as well as a need for writingdown values of the shares in the subsidiaries.Cautionary statementThis report contains forward-looking statements that are based on the current expectations of themanagement of SKF. Although management believes that the expectations reflected in suchforward-looking statements are reasonable, no assurance can be given that such expectations willprove to have been correct. Accordingly, results could differ materially from those implied in theforward-looking statements as a result of, among other factors, changes in economic, market andcompetitive conditions, changes in the regulatory environment and other government actions,fluctuations in exchange rates and other factors mentioned in SKFs latest annual report (availableon under the Administration Report; "Important factors influencing the financialresults", "Financial risks" and "Sensitivity analysis", and in this full-year report under "Risks anduncertainties in the business."Gothenburg, 1 February 2011Aktiebolaget SKF(publ.)Tom JohnstonePresident and CEO
  10. 10. Page 6 of 19Teleconference/meeting - On 1 February at 13.30 (CET), 12.30 (UK):+46 (0)8 5052 0114 Swedish participants, 885203+44 (0)207 1620 177 European participants, 885203+1 334 323 6203 US participants, 885203Venue: Operaterrassen Karl XII:s torg StockholmPlease don’t use your phone’s loudspeaker as this has a negative effect on the sound.You will find all information regarding SKF Year-end results on the IR website. statements1. Consolidated income statements2. Consolidated statements of comprehensive income and consolidated statements of changes in shareholders’ equity3. Consolidated balance sheets4. Consolidated statements of cash flowOther financial statements5. Consolidated financial information - yearly and quarterly comparisons6. Segment information - yearly and quarterly comparisons7. Parent company income statements, statements of comprehensive income, balance sheets and footnote8. Acquisition of Lincoln IndustrialThe consolidated financial statements of the SKF Group are prepared in accordance with International FinancialReporting Standards as adopted by EU. The SKF Group applies the same accounting policies and methods ofcomputation in the interim financial statements as compared with the Annual Report 2009 includingSustainability Report. No new or amended IFRS effective 2010 had any significant impact on the Group.The consolidated quarterly report has been prepared in accordance with IAS 34. The report for the parentcompany has been prepared in accordance with the Annual Accounts Act and RFR 2. The report has not beenreviewed by the company’s auditors.The SKF First-quarter report 2011 will be published on Tuesday, 19 April 2011.The Annual General Meeting will be held on Thursday, 28 April 2011 in Gothenburg, Sweden.The SKF Annual Report including Sustainability Report for 2010 will be published in a pdf-format on SKF’swebsite on 11 March 2011. The printed report will be delivered on 24 March 2011and will be available at the company on that day.Further information can be obtained from:Ingalill Östman, Group Communicationtel: +46-31-3373260, mobile: +46-706-973260, e-mail: ingalill.ostman@skf.comMarita Björk, Investor Relationstel: +46-31-3371994, mobile: +46-705-181994, e-mail: marita.bjork@skf.comAktiebolaget SKF, SE-415 50 Göteborg, Sweden, Company 556007-3495,Tel: +46-31-3371000, fax: +46-31-3372832,
  11. 11. Page 7 of 19 Enclosure 1CONSOLIDATED INCOME STATEMENTS (SEKm) Oct-Dec Oct-Dec Jan-Dec Jan-Dec 2010 2009 2010 2009Net sales 15,409 13,887 61,029 56,227Cost of goods sold -11,139 -11,049 -44,216 -45,024Gross profit 4,270 2,838 16,813 11,203Selling and administrative expenses -2,020 -1,838 -8,222 -7,915Other operating income/expenses - net -49 2 -139 -74Profit/loss from jointly controlled andassociated companies 1 2 0 -11Operating profit 2,202 1,004 8,452 3,203Operating margin, % 14.3 7.2 13.8 5.7Financial income and expense - net -154 -239 -903 -906Profit before taxes 2,048 765 7,549 2,297Taxes -698 -260 -2,253 -592Net profit 1,350 505 5,296 1,705Net profit attributable toShareholders of the parent 1,311 476 5,138 1,642Non-controlling interests 39 29 158 63Basic earnings per share, SEK* 2.87 1.05 11.28 3.61Diluted earnings per share, SEK* 2.87 1.05 11.28 3.61Additions to property, plant and equipment 460 505 1,651 1,975Number of employees registered 44,742 41,172 44,742 41,172Return on capital employed for the12-month period ended 31 December, % 24.0 9.1 24.0 9.1* Basic and diluted earnings per share are based on net profit attributable to shareholders of the parent.NUMBER OF SHARESTotal number of shares 455,351,068 455,351,068 455,351,068 455,351,068 - whereof A shares 44,915,604 45,421,004 44,915,604 45,421,004 - whereof B shares 410,435,464 409,930,064 410,435,464 409,930,064Total number of diluted shares outstanding 455,351,068 455,351,068 455,351,068 455,351,068Total weighted average number of dilutedshares 455,351,068 455,351,068 455,351,068 455,365,536
  12. 12. Page 8 of 19 Enclosure 2CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (SEKm) Oct-Dec Oct-Dec Jan-Dec Jan-Dec 2010 2009 2010 2009Net profit 1,350 505 5,296 1,705Other comprehensive incomeExchange differences arising on translation offoreign operations 22 456 -1,660 -798Available-for-sale assets 119 79 169 134Cash flow hedges 14 -41 18 182Actuarial gains and losses 839 -75 -616 -888Income tax relating to components of othercomprehensive income -286 8 56 105Other comprehensive income, net of tax 708 427 -2,033 -1,265Total comprehensive income 2,058 932 3,263 440Total comprehensive income attributable toShareholders of AB SKF 2,012 869 3,131 412Non-controlling interests 46 63 132 28CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (SEKm) December 2010 December 2009Opening balance 1 January 18,280 19,689Total comprehensive income 3,263 440Cost for share programmes and exercise of options, net 8 -12Non-controlling interests -35 -208Total cash dividends -1,622 -1,629Closing balance 19,894 18,280
  13. 13. Page 9 of 19 Enclosure 3CONSOLIDATED BALANCE SHEETS (SEKm) December 2010 December 2009Goodwill 6,309 2,759Other intangible assets 4,164 1,255Property, plant and equipment 12,922 13,933Deferred tax assets 1,695 1,665Other non-current assets 1,411 1,502Non-current assets 26,501 21,114Inventories 12,879 11,771Trade receivables 9,859 8,800Other current assets 2,839 3,590Other current financial assets 3,146 5,740Current assets 28,723 29,901TOTAL ASSETS 55,224 51,015Equity attributable to shareholders of AB SKF ← 18,935 ← 17,411 ← ←Equity attributable to non-controlling interests ← 959 ← 869Long-term financial liabilities 10,850 8,987Provisions for post-employment benefits 7,093 7,020Provisions for deferred taxes 2,132 754Other long-term liabilities and provisions 1,622 1,599Non-current liabilities 21,697 18,360Trade payables 4,476 3,989Short-term financial liabilities 1,325 2,018Other short-term liabilities and provisions 7,832 8,368Current liabilities 13,633 14,375TOTAL EQUITY AND LIABILITIES 55,224 51,015
  14. 14. Page 10 of 19 Enclosure 4CONSOLIDATED STATEMENTS OF CASH FLOW (SEKm) Oct-Dec Oct-Dec Jan-Dec Jan-Dec 2010 2009 2010 2009Operating activities:Operating profit 2,202 1,004 8,452 3,203Depreciation, amortization and impairment 539 503 1,992 2,171Net loss/gain (-) on sales of intangible assets, PPE,equity securities, businesses and assets held for sale -30 15 -5 29Taxes -511 -227 -1,722 -1,068Other including financial and non-cash items -453 206 -1,950 590Changes in working capital -489 467 -1,216 3,076Net cash flow from operations 1,258 1,968 5,551 8,001Investing activities:Payments in intangible assets, PPE, businesses andequity securities -7,239 -532 -8,496 -2,271Sales of intangible assets, PPE, businesses, assets heldfor sale and equity securities 15 9 107 22Net cash flow used in investing activities -7,224 -523 -8,389 -2,249Net cash flow after investments before financing* -5,966 1,445 -2,838 5,752Financing activities:Change in short- and long-term loans 3,636 -2,078 2,281 -2,048Payment of finance lease liabilities -1 0 -11 -6Cash dividends 0 -1 -1,622 -1,629Investments in short-term financial assets -119 -169 -788 -2,831Sales of short-term financial assets 631 1,441 996 2,461Net cash flow used in financing activities 4,147 -807 856 -4,053NET CASH FLOW -1,819 638 -1,982 1,699Change in cash and cash equivalents: Cash and cash equivalents at 1 October/1 January 4,193 3,761 4,430 2,793 Cash effect excl. acquired businesses -2,102 638 -2,265 1,699 Cash effect of acquired businesses 283 0 283 0 Exchange rate effect 21 31 -53 -62Cash and cash equivalents at 31 December 2,395 4,430 2,395 4,430Change in net interest- Opening Translation Cash Businesses Other non Closingbearing liabilities balance effect change acquired/ cash balance 1 Jan 2010 sold changes 31 Dec 2010Loans, long- and short-term 10,750 -1,289 2,281 0 54 11,796Post-employment benefits, net 6,993 -760 -466 163 1,117 7,047Financial assets, others -1,512 76 208 -2 217 -1,013Cash and cash equivalents -4,430 53 2,265 -283 0 -2,395Net interest-bearingliabilities 11,801 -1,920 4,288 -122 1,388 15,435* Adjusted for acquisition of Lincoln Industrial Oct-Dec Oct-Dec Jan-Dec Jan-Dec 2010 2009 2010 2009Net cash flow after investments before financing -5,966 1,445 -2,838 5,752Adjustment for acquisition of Lincoln Industrial 6,764 0 6,764 0Net cash flow after investments before financingafter adjustment for acquisition of Lincoln Industrial 798 1,445 3,926 5,752
  15. 15. Page 11 of 19 Enclosure 5CONSOLIDATED FINANCIAL INFORMATION –YEARLY AND QUARTERLY COMPARISONS(SEKm unless otherwise stated) Full Full year year 1/09 2/09 3/09 4/09 2009 1/10 2/10 3/10 4/10 2010Net sales 14,849 14,167 13,324 13,887 56,227 14,446 15,709 15,465 15,409 61,029Cost of goods sold -11,844 -11,656 -10,475 -11,049 -45,024 -10,701 -11,336 -11,040 -11,139 -44,216Gross profit 3,005 2,511 2,849 2,838 11,203 3,745 4,373 4,425 4,270 16,813Gross margin, % 20.2 17.7 21.4 20.4 19.9 25.9 27.8 28.6 27.7 27.5Selling and administrativeexpenses -2,219 -2,007 -1,851 -1,838 -7,915 -2,032 -2,128 -2,042 -2,020 -8,222Other operating income/expenses - net -14 -25 -37 2 -74 -7 -7 -76 -49 -139Profit/loss from jointlycontrolled and associatedcompanies -4 -5 -4 2 -11 -4 1 2 1 0Operating profit 768 474 957 1,004 3,203 1,702 2,239 2,309 2,202 8,452Operating margin, % 5.2 3.4 7.2 7.2 5.7 11.8 14.3 14.9 14.3 13.8Financial income andexpense - net -237 -162 -268 -239 -906 -198 -192 -359 -154 -903Profit before taxes 531 312 689 765 2,297 1,504 2,047 1,950 2,048 7,549Profit margin before taxes,% 3.6 2.2 5.2 5.5 4.1 10.4 13.0 12.6 13.3 12.4Taxes -137 11 -206 -260 -592 -434 -596 -525 -698 -2,253Net profit 394 323 483 505 1,705 1,070 1,451 1,425 1,350 5,296Net profit attributable toShareholders of the parent 390 314 462 476 1,642 1,033 1,405 1,389 1,311 5,138Non-controlling interests 4 9 21 29 63 37 46 36 39 158Basic earnings per share, SEK* 0.86 0.69 1.01 1.05 3.61 2.27 3.09 3.05 2.87 11.28Diluted earnings per share, SEK* 0.86 0.69 1.01 1.05 3.61 2.27 3.09 3.05 2.87 11.28Dividend per share, SEK - 3.50 - - 3.50 - 3.50 - - 3.50Return on capital employedfor the 12-month period, % 18.7 13.4 10.2 9.1 9.1 11.9 16.8 20.7 24.0 24.0Gearing, %** 50.1 51.1 52.9 49.3 49.3 48.3 47.4 47.6 48.6 48.6Equity/assets ratio, % 35.9 34.6 33.5 35.8 35.8 36.2 36.0 36.0 36.0 36.0Net worth per share, SEK* 43 40 36 38 38 38 38 37 42 42Additions to property, plantand equipment 494 442 534 505 1,975 389 433 369 460 1,651Registered number of employees 43,653 42,422 41,756 41,172 41,172 41,055 41,644 42,475 44,742 44,742* Basic and diluted earnings per share and Net worth per share are based on net profit attributable to shareholders of the parent.** Current- plus non-current loans plus provisions for post-employment benefits, net, as a percentage of the sum of current- plus non-current loans, provisions for post-employment benefits, net, and shareholders equity, all at end of interim period/year end.
  16. 16. Page 12 of 19 Enclosure 6SEGMENT INFORMATION - YEARLY AND QUARTERLY COMPARISONS**(SEKm unless otherwise stated) Full Full year year 1/09 2/09 3/09 4/09 2009 1/10 2/10 3/10 4/10 2010 Industrial Division Net sales 5,802 4,844 4,380 4,508 19,534 4,695 4,873 4,952 4,904 19,424 Sales incl. intra-Group sales 8,187 7,120 6,494 6,745 28,546 7,105 7,514 7,545 7,443 29,607 Operating profit 635 344 335 237 1,551 713 909 974 902 3,498 Operating margin* 7.8% 4.8% 5.2% 3.5% 5.4% 10.0% 12.1% 12.9% 12.1% 11.8% Operating margin excl. restructuring* 8.0% 5.5% 5.7% 6.6% 6.5% 11.2% 12.1% 12.9% 12.1% 12.1% Assets and liabilities, net 18,734 17,474 15,948 15,966 15,966 15,511 15,960 14,843 23,392 23,392 Registered number of employees 19,010 18,616 18,093 17,853 17,853 17,701 17,715 17,882 19,922 19,922 Service Division Net sales 5,011 4,944 4,636 5,008 19,599 5,093 5,635 5,637 5,664 22,029 Sales incl. intra-Group sales 5,118 5,028 4,713 5,098 19,957 5,181 5,725 5,739 5,763 22,408 Operating profit 598 636 622 729 2,585 647 745 803 841 3,036 Operating margin* 11.7% 12.7% 13.2% 14.3% 13.0% 12.5% 13.0% 14.0% 14.6% 13.5% Operating margin excl. restructuring* 11.7% 12.9% 13.5% 14.6% 13.1% 12.5% 13.0% 14.0% 14.6% 13.5% Assets and liabilities, net 5,471 5,333 4,734 4,819 4,819 5,345 5,650 5,054 5,125 5,125 Registered number of employees 5,940 5,823 5,761 5,725 5,725 5,731 5,710 5,773 5,832 5,832 Automotive Division Net sales 3,747 4,126 4,068 4,110 16,051 4,362 4,850 4,528 4,491 18,231 Sales incl. intra-Group sales 4,555 4,884 4,784 4,880 19,103 5,230 5,825 5,495 5,439 21,989 Operating profit -437 -468 28 92 -785 374 570 470 445 1,859 Operating margin* -9.6% -9.6% 0.6% 1.9% -4.1% 7.2% 9.8% 8.5% 8.2% 8.5% Operating margin excl. restructuring* -6.2% -0.6% 3.7% 5.5% 0.7% 7.2% 9.8% 8.5% 8.2% 8.5% Assets and liabilities, net 10,359 9,143 8,177 8,073 8,073 8,437 8,502 7,976 8,034 8,034 Registered number of employees 14,318 13,744 13,778 13,480 13,480 13,569 14,002 14,399 14,469 14,469* Operating margin is calculated on sales including intra-Group sales.Reconciliation to profit before tax for the Group** Jan-Dec 2010 Jan-Dec 2009 Operating profit: Industrial Division 3,498 1,551 Service Division 3,036 2,585 Automotive Division 1,859 -785 Other operations outside the divisions 341 158 Unallocated Group activities and adjustments, net -282 -306 Financial net -903 -906 Profit before tax for the Group 7,549 2,297** Previously published amounts have been restated to conform to the current Group structure in 2010. The structural changes include business units being moved between the divisions and between other operations/Group activities and divisions.
  17. 17. Page 13 of 19 Enclosure 7PARENT COMPANY INCOME STATEMENTS (SEKm) Oct-Dec Oct-Dec Jan-Dec Jan-Dec 2010 2009 2010 2009Net sales 438 447 1,683 1,623Cost of services provided -438 -447 -1,683 -1,623Gross profit 0 0 0 0Administrative expenses -95 -18 -213 -101Other operating income/expenses – net -2 1 -14 0Operating loss -97 -17 -227 -101Financial income and expenses - net -68 -68 1,718 2,602Loss/profit before taxes -165 -85 1,491 2,501Provisions to untaxed reserves -178 -145 -178 -145Taxes 68 53 157 99Net loss/profit -275 -177 1,470 2,455PARENT COMPANY STATEMENTS of COMPREHENSIVE INCOME (SEKm) Oct-Dec Oct-Dec Jan-Dec Jan-Dec 2010 2009 2010 2009Net loss/profit -275 -177 1,470 2,455Other comprehensive incomeAvailable-for-sale assets 118 76 168 134Other comprehensive income, net of tax 118 76 168 134Total comprehensive income -157 -101 1,638 2,589PARENT COMPANY BALANCE SHEETS (SEKm) N December 2010 December 2009 o t eInvestments in subsidiaries 22,255 17,211Receivables from subsidiaries 10,592 8,614Other non-current assets 689 524Non-current assets 33,536 26,349Receivables from subsidiaries 3,285 3,472Other receivables 154 209Current assets 3,439 3,681TOTAL ASSETS 36,975 30,030Shareholders’ equity 1 11,490 10,208Untaxed reserves 1,417 1,240Provisions 165 151Non-current liabilities 10,581 8,614Current liabilities 13,322 9,817TOTAL SHAREHOLDERS’ EQUITY,PROVISIONS AND LIABILITIES 36,975 30,030Contingent liabilities 5 5Note 1. Shareholders’ equity (SEKm) December 2010 December 2009Opening balance 1 January 10,208 8,258Dividends -1,594 -1,594
  18. 18. Page 14 of 19Total comprehensive income 1,638 2,589Exercise of options and cost for share programmes, net 31 -11Group contribution, net 1,207 966Closing balance 11,490 10,208 Enclosure 8Acquisition of Lincoln IndustrialOn 28 December 2010 the Group acquired 100% of the shares of Lincoln Holdings Enterprises, Inc(Lincoln Industrial) from Harbour Group. Lincoln Industrial is a leader in the design, manufactureand supply of highly engineered lubrication systems, tools and equipment, and is headquartered inSt. Louis, Missouri, USA.Lincoln Industrial’s three main product lines are automated lubrication systems, hose reels, andgrease guns, with a focus on grease-based systems. Sales are mainly generated from automatedlubrication systems and related products. Major end markets include industrial, energy, off-highway, mining, agriculture, and steel. The company has a global footprint with around 50% of itssales generated in North America, 25% in Europe and 20% in Asia Pacific. The company hasaround 2,000 employees with manufacturing operations in the US, Asia and Europe.Lincoln Industrial will be part of a newly created business unit for lubrication systems within SKF’sIndustrial Division. The acquisition of Lincoln Industrial is in line with SKF’s strategy and builds ona series of acquisitions made in the lubrication systems sector over the last six years. LincolnIndustrial is highly complementary to SKF’s existing lubrication systems business, with limitedproduct and geographical overlap. The acquisition furthers SKF’s strategy including: • improving the lubrication systems platform through Lincoln Industrial’s complementary product portfolio. • increasing the geographical sales coverage in North America and Asia. • expanding the business to the automotive aftermarket in the US. • expanding the manufacturing operations through Lincoln Industrial’s strong US and Asian manufacturing footprint.SKF expects to achieve significant synergies from the combination through improved salesopportunities and greater efficiencies.Lincoln Industrial is included in the Group’s balance sheet at 31 December 2010, with no impact onthe Group’s income statement for the year 2010. Their results will be included in the Group’sincome statement as from 1 January 2011.A preliminary allocation of the acquisition cost to the identifiable assets acquired and liabilitiesassumed (net assets) was made. All allocations are only preliminary and are expected to befinalized in Q2 2011 pending the final audit and asset valuations. The preliminary values are asfollows: Fair value of net assets acquired (SEKm): Trademarks 1,020 Customer relationships 1,836 Other intangibles 287 Plant, property and equipment 358 Receivables 441 Inventory 648 Other assets 300 Deferred tax provisions -1,225 Post-employment benefits -163 Other liabilities -344 3,158 Goodwill 3,889 Total acquisition cost 7,047 Cash and cash equivalents acquired -283 Cash outflow 6,764
  19. 19. Page 15 of 19The acquisition cost is subject only to adjustments for the final audited cash, working capital, andindebtedness levels. The acquisition was paid using existing cash and credit facilities. Acquisitionrelated-costs of SEK 99 million were expensed, of which SEK 80 million was included as Otheroperating expense and SEK 19 million was included as Selling expense in the Group’s incomestatement.Receivables arise from the normal course of business and include an allowance for uncollectibilty ofapproximately SEK 16 million.The acquisition of Lincoln Industrial included all Lincoln, Alemite and Reelcraft entities and brands.Consequently the opening balances include a preliminary valuation of trademarks of SEK 1,020million, which the Group considers to have indefinite useful lives, as it is intended to continue topromote these brands in the foreseeable future. Preliminary values were allocated to othersignificant intangibles which included customer relationships to be amortized over an expected lifeof 15 years.None of the goodwill is expected to be deductible for tax purposes. The preliminary goodwill arisesdue to Lincoln Industrial’s expected ability to continuously renew its technology resulting inimproved sales opportunities as well as their ability to deliver strong financial performance on aconsistent basis.Proforma net sales and net profitHad Lincoln Industrial been acquired at 1 January 2010, the consolidated revenue for the Groupwould have amounted to SEK 63,858 million, and consolidated net profit would have been SEK5,509 million. This unaudited proforma information adds Lincoln Industrial’s income statementexcluding their acquisition-related costs and financing costs, and adjusts for the additionalamortizations, depreciations, and inventory costs arising from the fair value adjustment.Additionally, net financial costs were adjusted to reflect the change in the Group’s net interestbearing liabilities caused by the payment of the purchase price. Income taxes have been includedin all proforma adjustments.